WORLD - REGULATIONS - AAOIFI plans reform of takaful standards

www.insuranceinsight.eu -  Khaled Al Fakih, the new secretary-general of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions, outlined plans for a sweeping review of its guidelines in an interview with Reuters.

"We would like to see insightful debate ... that can help us develop standards that can benefit the industry," Fakih told Reuters, ahead of AAOIFI's annual meeting on 7 and 8 May.
His organisation plans to start consultations on reforming the operations of sharia boards, the groups of Islamic scholars which rule on whether financial institutions' activities and products are religiously acceptable, by the middle of this year. (source)


A final draft of the reforms is not expected to be ready before the end of next year at the earliest.
AAOIFI will also work on a new framework for disclosing financial data, and will look at revising standards for takaful (sharia compliant insurance), investment accounts and other products, Insurance Insight understands.
Fakih, who took the helm in February, said basic elements of Islamic finance such as murabaha, mudaraba and ijara - structures designed to permit investment while obeying religious bans on paying interest and pure monetary speculation - would be reviewed next year.
But the growth has exposed weaknesses in Islamic finance. One is the lack of a clear consensus on what products and procedures are permissible. The sharia boards of individual banks and investment firms can issue conflicting rulings.
The board may also attempt to address the accusations of conflict of interest that are often levelled at the sharia board system because scholars are paid handsomely by the firms whose behaviour they are supervising.
AAOIFI plans to improve the operations of shariah boards by strengthening the certification process for scholars, Fakih said. The organisation currently offers scholars two professional credentials, but they have been criticised as not sufficiently rigorous and too easy to obtain.
In addition, AAOIFI is developing new guidance on the relationship between Islamic financial firms and their shariah boards, "similar to international best practices in terms of reference for financial institutions' board of directors".

Source:  http://www.insuranceinsight.eu/insurance-insight/news/2171906/aaoifi-plans-reform-takaful-standards - May 2, 2012